Can someone summarize the economic calculation problem?

Economics Economics Questions
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They don’t have to be constant, they just have to change slowly enough to make statements with reasonable surety. For instance, the best indicator, believe it or not, of how busy a restaurant is going to be tomorrow is how busy it was on that exact same day last year.

Hmm, you might have a point. I’ll have to think that over. One of the things I was concerned with though was Mises’s claim that economics was a priori and not empirical. I hear the Ludwig Lachmann has a concept about “radical uncertainty.” I wonder what that’s about.

Similarly, people need to stay alive, need to be clothed, entertained, need transportation, and consume a million other things.

But I think Clayton raised a good point earlier about it not being simply about “clothes” but about what type of clothes. Given that people prefer different types of clothes, then a shift in the distribution of wealth would seem to shift the demand for types of clothes–unless the size of the economy would average things out.

But then if things don’t really change that much and people are largely the same, then wouldn’t that make calculation under socialism much easier as well?

To return to the topic: Many leading socialists back in the 50’s conceded Mises’s point on the economic calculation problem.

Which ones exactly (I honestly don’t know)?

Every attempt to communize completely, ie: farming, has led to mass starvation in the countries that tried it–China’s great leap forward, 20+ million people died.

​I don’t support a China-style economy. I’m not very familiar with the famine, but it certainly seems that government policy was largely at fault. However, I’m not sure the calculation argument is the best means for explaining the disaster. The government pretty much forced “collectivization” on the people, didn’t base their plans on their input, and instead changed their farming methods based on the ideas of some crackpot. There also seemed to be an incentive to overreport farm production among local bureaucrats. And if it was because of the calculation problem, what does that mean? The demand for food changed? It didn’t change but the government stupidly thought that it decreased?

As for the famines in the Soviet Union under Stalin, it’s my understanding that those were intentional and not the result of a miscalculation.

I don’t believe that the collective farming in revolutionary Spain led to mass starvation. Actually, I’ve heard that it led to increased productivity. I suppose that is too short of a time to say much about though.

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You can’t perform math on ordinal preferences, and empirics suffers from the correlation-causation problem. That’s why you need theory. It would be like saying you have serious concerns about philosophy not being empirical. Philosophy could not be empirical, and trying to do so would likely be laughed at.

Easier, but still not as efficient. And the larger that economy scales the less efficient as the consequences of misallocation become bigger.

I don’t know for sure either. The source I’d read that from (iirc: Rothbard) mentioned them as all the economists of the former soviet eastern block whom, while still calling themselves socialists, led the way back to market-based economies and reforms and away from command economies. I don’t know if the writer meant this as a concession by action rather than verbally or not.

Rothbard wrote an economic history, here’s a brief preview from that which is fairly relevant to this discussion.

When collectivization is a market replacement. The two generally don’t co-exist. Markets presume individual ownership. Without that you can’t have trade and thus no market and certainly no prices. No, to each according to need was to replace prices. Thus, command economies and replacement of markets.

Any time you try to reproduce the action of a market with a command economy you hit headlong into the economic calculation problem.

Sowell deals with this well in Knowledge and Decisions, which I found to be a stunning refutation of socialism on a very granular level, taking reasoning back to the level of the farmer and the incentives he faces under either system, and showing exactly why farm collectivization failed and why this is an intractable problem in all command economies.

Well yeah, I was subtly suggesting that command economies create opportunities for politicization of distribution–that’s actually the purpose of the command economy, but unfortunately it allows for things like that in the Ukraine to happen, and there’s no analogous market risk. That absent a market deciding what gets destributed where, that decision can or will be made politically, at the whim of the politically powerful. Thus a mass-starvation results. In fact, around the world, the major starvations of the world are all generally politically caused now. even the recent African ones, where starvation was used as a political tool against enemies, just as in the Ukraine.

Yeah I haven’t much looked into the Spain incident. Any number of reasons why that could result tho. We know that generally that won’t be the case in the long-run. The Chinese have made their factories competitive, but it may be by subsidizing them, which may benefit us more than them in the long run.

If production did go up after the communist takeover, it’s probably due to how miserable the conditions had degraded to under that turmoil, for whatever reason, prior to the communist takeover.

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Economic Calculation In The Socialist Commonwealth

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Briefly, Mises used an ideal socialist state with a central planning committee as the decision making body for production, provision and distribution. How did the Sovietunion and its clones do that in reality?

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What do you mean by a “single owner”? Who is the single owner in a “socialist state”?

No one but the state. No need for quotation marks, the terms are accurate. Mises is dealing with the position where private ownership and therefore exchange of capital goods is prohibited.

Only if the survey allows you to wish for anything. The business I work for uses customer surveys to plan production.

Yeah, with the backdrop of prices to assist them. They may use surveys to fine-tune or forecast possible future demand. Surveys tell producers nothing about relative scarcity and actual consumer willingness to depart with scarce goods in exchange for other scarce goods. Socialist managers can try guess what consumers want but what actually signals to them that they have succeeded in allocating scarce resources to satisfy these wants? What incentivises them to do so?

Unit of account for what? If labor is heterogeneous, as Mises’s claims, then a single unit of account might not be appropriate. (I should probably actually read Lange and Taylor’s own words before dismissing them as I did.)

Transactions. Money eliminates this problem by providing a single unit of account as it is the most widely demanded and accepted good. I don’t see how it follows from the fact that goods are heterogeneous that therefore money too must be. Why? As for labour, why is it even uniquely relevant? It’s a factor of production amongst others. Under barter and absent money there are multiple units of account and the strong possibility of a lack of a double coincidence of wants. What makes money valued is the fact that it will predictably be accepted in any transaction for the fact that someone down the line will also accept it as such. I cannot see why some socialists hold so much hostility towards it.

My question is: What determines whether the resource the consumer sacrifices was worth producing? Your answer seems to be the fact that the other producer was willing to sacrifice his resource for it. What I think this really indicates is that the resources were worth exchanging, not producing. It makes perfect sense to say that the labor required in producing the sacrificed good was not worth the exchanged for good regardless of the fact that it was exchanged.

No, what I am saying is that the producer is willing to sacrifice the resource in order to obtain another resource that is more useful to them. In turn, then consumer is sacrificing their own resource for what they deem more valuable in their hands.

But my point is that there could be a situation where all goods produced could have very little value and yet they can be exchanged because the relative values of the goods are different. I could spend hours digging holes and you could spend hours making mud pies. The fact that I can make a “profit” off of selling my holes for your mud pies merely indicates that I prefer your mud pies to my holes and you prefer my holes to your mud pies. It doesn’t tell us that making houses and bread would be more worthwhile.

The virtue of private ownership of capital goods is that if an entrepreneur speculates wrongly as to what goods consumers will consider valuable, which combinations of capital goods and other factors will provide the most cost-efficient means of producing the goods etc. is that they will suffer losses and thereby be signalled that consumers are not sufficiently willing to part with resources for the good.

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Not wanting to read the whole thread I believe things have become unecessarily complicated. Economic calculation, in crude laymens terms, is boiled down to man’s current inability to appraise fleeting individual preference on a second by second bases for every man women and child of every moment on earth. IE we need omniscience and omnipotence to solve the equation. Mises calls this out and explains how the price mechanism offers a solution.

Once this problem is solved we can move forward with our star-trekian superabundant utopia. Untill then I don’t even know why people are arguing the point. Unless you have the solution for omniscience and omnipotence there is no need to further discuss the issue.

With respect.